HomeMy WebLinkAboutMINUTES - 05162006 - SD.2 r
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TO: BOARD OF SUPERVISORS Contra
FROM: JOHN CULLEN, •wl '
COUNTY ADMINISTRATOR Costa
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DATE.. MAY 16, 2006 Sr----ouK-- County
SUBJECT: ACCEPT THE REPORT FROM BUCK CONSULTANTS LLC, CONERNING
PRELIMINARY ACTUARIAL ANALYSIS OF THE COUNTY'S LIAIBILITY FOR
RETIREE HEALTHCARE AND OTHER POST-EMPLOYMENT BENEFITS,
CONSISTENT WITH THE REQUIREMENTS OF GOVERNMENTAL
ACCOUNTING STANDARDS BOARD STATE NO. 45, AS PRESENTED TO
THE FINANCE COMMITTEE.
SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION
RECOMMENDATIONS:
ACCEPT the report and presentation materials from Buck Consultants, LLC, (attached)
concerning preliminary actuarial analysis of the County's liability for retiree healthcare and other
post-employment benefits, consistent with the requirements of Governmental Accounting
Standards Board Statement No. 45 (GASB 45), as presented to the Finance Committee.
FISCAL IMPACT:
None
BACKGROUND:
On February 28, 2006, the Board of Supervisors authorized the County Administrator to execute a
contract with Buck Consultants, LLC (Buck) to provide actuarial and consulting services related to
compliance with the requirements of GASB 45. The Board also directed staff to provide future
progress reports on this subject to the Finance Committee.
Since the Board's action in late February, Buck has developed an analysis of the County's liability
for retiree healthcare and other post-employment benefits (OPEB) consistent with the
requirements of GASB 45. The attached letter contains the findings of Buck's analysis.
On May 4, 2006, Michael Schionning and Jacqueline Farren from Buck presented their analysis to
the Finance Committee. A copy of Buck's presentation to the Finance Committee is also
attached.
CONTINUED ON ATTACHMENT: X YES SIGNATURE:
------------------------------------------------------------------------------------ - ------------------------------------ -----------------
--------------------------------
ECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMEN ON OF BOARD COMMITT
c�PPROVE OTHER
SIGSIGNATURE(S):
--E(S- -- - ---------------------------------------- - ACTION OF
- - ------------------------------------------ACTION
ON APPROVE AS RECOMMENDED OTHER
VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE
AND CORRECT COPY OF AN ACTION TAKEN
UNANIMOUS(ABSENT AND ENTERED ON THE MINUTES OF THE
BOARD OF SUPERVISORS ON THE DATE
AYES: NOES: SHOWN.
ABSENT: ABSTAIN:
ATTESTED
CONTACT: Jason Crapo 335.1021 JOHN CULqp,CLE OF THE BOARD OF SUPERVISORS
AND COUNTY ADMINISTRATOR
CC: County Administrator/Capital Facilities
County Auditor-Controller
County Treasurer-Tax Collector
Human Resources Department
BY 0 4"PFUTI
Board of Supervisors
May 16, 2006
Accept the report from Buck Consultants LLC, concerning preliminary actuarial analysis of the
County's liability for retiree healthcare and other post-employment benefits, consistent with the
requirements of Governmental Accounting Standards Board Statement No. 45, as recommended
by the Finance committee.
Page 2
At the conclusion of Buck's presentation, the Finance Committee provided the following direction
to staff:
1. Prepare an analysis of OPEB liability reductions that could be produced through changes to
healthcare benefits
2. Prepare an analysis of the cost associated with funding varying levels of the liability and make
recommendations concerning the portion of the liability that should be pre-funded
3. Investigate unresolved questions concerning State and Federal reimbursement for pre-funding
OPEB costs, establishment of an irrevocable trust for the accumulation of pre-funding assets,
and options for investment of such assets
4. Work with California State Association of Counties (CSAC) and other public sector partners to
gather data and develop statewide strategies for managing this issue
Buck's calculation of the County's OPEB liability represents an important step in the County's
compliance with the requirements of GASB 45 and development of a plan for managing OPEB
liability. Going forward, the CAO will continue to work with other County departments and Buck
Consultants to develop recommendations for the Board to consider concerning strategies for
managing the County's OPEB liability. The CAO and Buck Consultants will continue to provide
future progress reports on this subject to the Finance Committee.
Addendum to SD.2
May 16, 2006
On this day the Board considered accepting a report and presentation materials from
Buck Consultants, LLC, concerning the preliminary actuarial analysis of the County's
liability for retiree health care and other post-employment benefits, consistent with the
requirements of Governmental Accounting Standards Board Statement No. 45 (GASB
45), as recommended by the County Administrator.
Chair Gioia asked for public comment on this item. The following person spoke:
Roland Katz, Public Employees Union, Local 1, told the Board to keep
this in perspective and to remember this originated from the private sector
where many large corporations were hiding real costs from stockholders
and the public to overvalue their shares. He said if the County is paying
$30m a year on the "pay as you go"the County may not have the
resources to put $60 to $ 100m more into a prefunding mechanism. He
explained the only long-term solution for retiree health care and all other
health care issues has to be done on the national level.
Chair Gioia said that one of the issues would have a major impact is federal and state
refunds covering the cost of County employees engaged in services needed under state or
federal law and said staff would make sure all opportunities would be available to cover
the retiree health care component. He said this should be raised through California State
Association of Counties, (CSAC) to ensure every County goes through its discussion on
how to prefund retiree health.
Supervisor Piepho noted having this item as a Short Discussion for the public to hear and
see on an ongoing basis the significant costs that can will further deplete the County's
resources and ability to fund programs throughout the County annually.
Supervisor Uilkema asked what the distinction is between County funding the benefits on
a"pay as you go"basis versus electing to fully fund the annual needed cost each year.
Jason Crapo, Deputy County Administrator, explained going to a prefunding approach
would involve projecting the future costs of health insurance and other benefits for
current and future retirees and starting to set aside money now to pay for the future costs.
Supervisor Uilkema requested that the management of the Irrevocable Trust be explored
by the Finance Committee as to what if anything is specified by law and for possible
recommendations.
Chair Gioia said the Finance Committee has been looking at all aspects of establishing
the Trust and has directed staff to identify those issues including the ones mentioned by
Supervisor Uilkema.
Page—2-
Addendum to SD.2
May 16, 2006
By an unanimous vote with none absent, the Board of Supervisors took the following
action:
ACCEPTED the report and presentation materials from Buck Consultants, LLC,
(attached) concerning preliminary actuarial analysis of the County's liability for retiree
healthcare and other post-employment benefits, consistent with the requirements of
Governmental Accounting Standards Board Statement No.45 (GASB 450, as presented to
the Finance Committee, and requested Finance Committee to explore the management of
the Irrevocable Trust.
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April 25, 2006
Mr. Jason Crapo
Capital Facilities Administrator
Office of the County Administrator
Contra Costa County
651 Pine Street, 11`h Floor
Martinez, CA 94553
RE: Governmental Accounting Standards Board(GASB)Statement#45
Analysis for Contra Costa County
Dear Jason:
This letter presents the results of Buck Consultants' (Buck's)actuarial analysis of the
current liability for Contra Costa County's(CCC)postemployement health benefits,
including medical,prescription drug, and dental benefits. Using 2006 census and
cost data and current plan provisions, the GASB 45 liability was developed as of
January 1, 2006.
The amount that CCC currently contributes toward medical benefits for non-
CalPERS covered retired employees is a percentage of the 2006 plan rate varying
from 61%for Health Net PPO to 98%for the CCHP—A plan. Employees who
retire and are eligible for and immediately begin receiving a pension benefit through
the Contra Costa County Employees' Retirement Association receive the full County
contribution as presented for all plans in Appendix A. Retirees over age 65 also
receive a contribution offset equal to the Medicare Part B premium of$88.50 per
month for 2006 as an additional County contribution. The County contribution for
Ca1PERS administered plans is a flat rate depending on the employees' union
representation and the number of dependents covered under the plans.
i
1515 Murray Canyon Road,Suite 602•San Diego,CA 92108-4320
619.297.4930.6.19.297.5220.(fax)
Mr. Jason Crapo
April 25, 2006
Page 2
This analysis includes all actives,retirees, and surviving spouses of County entities
included in the County's CAFR and utilizing CCC health benefits. All results rely
on census and health plan data provided by the County. A listing of 8,428 active
employees with an average age of 45.6 years and average service of 10.1 years was
used for this study. Separate files containing 4,856 retirees and 360 survivors were
provided for this study as well.
Table 1 summarizes the Accumulated Postemployment Benefit Obligation(APBO)
as of January 1, 2006 as estimated for all participants under the current contribution
schedule. The APBO is defined as the actuarial present value of benefits attributed
to employee service rendered to a particular date.
The table also shows the normal cost(NC),which is the amount of benefit to be
earned by the active employees for service in calendar year 2006. Discount rates of
4.5%and 7.9%are provided for comparison purposes. The 4.5%discount rate
relates to the current pay-as-you-go (PAYGO)funding method while at the other
extreme, 7.9%would reflect a fully funded postretirement medical plan.
Table 1
CCC Postemployment Health Benefits Plan
APBO and Normal Cost as of January 1, 2006
APBO @ 4.5% APBO @ 7.9% NC @ 4.5% NC @ 7.9%
PAYGO (Fully Funded) PAYGO (Fully Funded)
Active Employees $1,605,649,000 $779,265,000 $130,604,000 $55,182,000
Retirees 919,840,000 614,568,000 0 0
Survivors 46,161,000 31,754,000 0 0
Total $2,571,650,000 $1,425,587,000 $130,604,000 $55,182,000
Government Accounting Standards Board(GASB) Statement Number 45 provides
disclosure requirements for Other Postemployment Benefit(OPEB)plans effective
as early as plan years beginning after December 15, 2006. GASB Statement 45
requires the calculation of an Annual Required Contribution(ARC) consisting of the
Normal Cost and a not greater than 30 year amortization of the Unfunded Actuarial
Accrued Liability(UAAL). There is no requirement for CCC to actually fund the
ARC. The UAAL is the Accumulated Postretirement Benefit Obligation(APBO)
less any assets held for the plan.
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Mr. Jason Crapo
April 25, 2006
Page 3
Most government postretirement medical plans are currently funded on a pay-as-
you-go basis with no dedicated assets or funding scheme. For fiscal years beginning
after December 15,2006 the GASB statement requires that these plan liabilities be
recognized on an accounting basis if not through an actual pre-funding arrangement.
Table 2 shows the ARC for the fiscal year that begins July 1,2006 under the current
health benefit plan under both discount rate assumptions.
Table 2
CCC Postemployment Health Benefits Plan
Annual Required Contribution for Fiscal Year 2006
4.5%Discount Rate 7.9%Discount Rate
PAYGO (Fully Funded)
Total APBO $2,571,650,000 $1,425,587,000
Assets 0 0
UAAL $2,571,650,000 $1,425,587,000
Annual Required Contribution
Normal Cost 130,604,000 55,182,000
30 Year Amortization of UAAL 85.721,000 47.519.000
ARC $216,325,000 $102,701,000
The amounts above include the liability associated with the subsidization of retiree
premiums by active employees. This occurs because the under age 65 retiree
medical costs are much higher than active employee costs but the retiree rates are the
same as the active rates due to the pooling of the costs in the underwriting process.
Approximately$424,583,000 of the liability is caused by this rate subsidy, or 16.0%
of the total liability under the 4.5%discount rate assumption.
Table 3-A and 3-B show the distribution for individual entities that we were asked to
review. Table 3-A provides information using the PAYGO funding approach and
Table 3-B provides information using the Fully Funded approach.
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Mr. Jason Crapo
April 25, 2006
Page 4
Table 3-A
CCC Postemployment Health Benefits Plan
Using Current PAYGO Funding Approach
By Reporting Entity
APBO,NC, and ARC at a 4.5% discount rate as of January 1, 2006
Enti APBO Normal Cost ARC
Contra Costa Fire $175,510,000 $5,068,000 $10,918,000
East Contra Costa Fire 8,990,000 887,000 1,187,000
First Five 120,000 36,000 40,000
CCC Retirement System 9,516,000 478,000 795,000
Contra Costa County 2,377,514,000 1.24,135,000 203,385,000
Total $2,571,650,000 $130,604,000 $216,325,000
Table 3-A shows that most of the cost resides with Contra Costa County -$2.38
billion for the liability and $203 million for the ARC. Contra Costa Fire is the next
largest at$176 million for the liability and$11 million for the ARC. The other
entities are relatively small.
Table 3-B provides the same results by entity at a 7.9%discount rate. This reflects a
fully funded postemployment health benefit program
Table 3-B
CCC Postemployment Health Benefits Plan
Using a Fully Funded Approach
By Reporting Entity
APBO,NC, and ARC at a 7.9% discount rate as of January 1, 2006
Enifty APBO Normal Cost ARC
Contra Costa Fire $97,685,000 $1,911,000 $5,167,000
East Contra Costa Fire 4,310,000 317,000 461,000
First Five 44,000 13,000 14,000
CCC Retirement System 4,983,000 205,000 371,000
Contra Costa County 1,318,565,000 52,736,000 96,688,000
Total $1,425,587,000 $55,182,000 $102,701,000
buckdonsultants A
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Mr. Jason Crapo
April 25, 2006
Page 5
Appendix A provides the assumptions used for the actuarial analysis. This list
includes items such as expected turnover rates, retirement rate, future trend rates, and
mortality rates. The rates that we used are consistent with those used by Ca1PERS in
its actuarial valuations. Appendix B provides a glossary of commonly used terms for
postretirement medical valuations.
Please contact me at(619)297-4930 should you have any questions.
Sincerely,
Michael W. Schionning,FSA,MAAA James A. Summers,FSA, MAAA
Principal&Consulting Actuary Senior Consultant&Actuary
cc: Jacqueline Farren,Buck Consultants
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APPENDIX A
Valuation Assumptions
Mortality Rates-1993 CalPERS Service Retirement for males and females
Withdrawal Rates—Representative values are shown below
Withdrawals per Withdrawals per 1,000
1,000 Lives for Males Lives for Females with
with less than 5 years less than 5 years of
Year of Service Service
1 70.18 85.32
21 143.5 174.73
3 99.87 136.66
4 87.69 113.72
5 72.44 99.83
Withdrawals per Withdrawals per 1,000
1,000 Lives for Males Lives for Females with
with more than 5 more than 5 years of
ears of Service Service
Age
301 16.33 25.67
35 14.67 22.64
40 13.18 19.97
45 11.84 17.62
50 10.64 15.54
55 9.56 13.71
60 8.59 12.09
New Entrants—None Assumed.
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APPENDIX A
Dependent Assumptions-For active employees, 85%are assumed married at
retirement. Female spouses are assumed to be three(3)years younger than their
husbands.
Discount Rates-4.5%and 7.9%.
Participation Assumption-100% active participation assumed upon retirement.
Medical Demographic Information-8,428 active employees,4,856 retirees and
360 surviving spouses as of 01/0112006. Because we currently do not know the
source of the survivors,we allocated all of their liability to the general Contra Costa
County grouping.
Retirement Rates
Probability of Eligible
Retirements During the Year
Age Males Females
50 2.654% 3.684%
55 4.813% 5.390%
56 3.957% 4.576%
57 4.788% 4.213%
58 5.500% 6.735%
59 6.811% 6.523%
60 12.807% 9.825%
61 12.426% 8.696%
62 23.818% 18.980%
63 21.037% 17.706%
64 14.311% 12.882%
65 24.399% 23.837%
66 13.820% 14.190%
67 11.208% 14.001%
68 11.736% 10.330%
69 9.036% 12.344%
Probability of retiring at age 70 equals 100%for both male and female.
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APPENDIX A
Health Care Cost and Expense Trend—Annual trend rates are shown below.
Medical Trend Rates
by Calendar Year
CY06 12%
CY07 11%
CY08 10%
CY09 9%
CY10 8%
CY11 7%
CY12 6%
CY13+ 5%
Contra Costa County 2006 Rates and Contributions
Current
contributions Rate
Early Retirees(under 65)
Kaiser EE 80% $451.87
EF 80% $1,052.62
Health Net HMO EE 80% $537.65
EF 80% $1,318.87
Health Net PPO EE 61% $656.75
EF 61% $1,560.16
CCHP -A
EE 98% $425.25
EF 98% $1,013.17
CCHP-B EE 90% $469.14
EF 90% $1,114.74
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APPENDIX A
Contra Costa County 2006 Rates and Contributions (continued)
Retirees(over 65)
Kaiser Cost EE 80%+$88.50 $509.28
Retiree EF 80%+$177.00 $1,167.64
Kaiser Senior EE 80%+$88.50 $256.43
Advantage EF 80%+$177.00 $661.94
Health Net Cost EE 80%+$88.50 $366.66
Retiree EF 80%+$177.00 $733.32
Health Net EE 80%+$88.50 $296.40
Seniority Plus EF 80%+$177.00 $592.80
Health Net Flex EE 61% $507.01
Net PPO EF 61% $1,014.03
CCHP-A EE 98%+$88.50 $347.05
Retiree EF 98%+$177.00 $856.77
CCHP-B EE 90%+$88.50 $390.94
Retiree EF 90%+$177.00 $958.34
CalPERS Participating Retirees:
For those retirees participating in CaIPERS,the County pays the lesser of the actual
rate or the following amounts:
Single - $338.76
Employee+1 Dependent - $677.62
Employee+Family - $880.78
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APPENDIX B
Glossary of Terminolomy
Accumulated Postemployment Benefit Obligation(APBO) -The actuarial present
value of benefits attributed to employee service rendered to a particular date.
Active Plan Participant-Any active employee who has rendered service during the
credited service period and is expected to receive benefits, including benefits to or
for any beneficiaries and covered dependents,under the postretirement benefit plan.
Actuarial Present Value -The value, as of a specified date, of a future benefit cost or
a series of benefit costs, with each amount adjusted to reflect(a)the time value of
money(through discounts for interest and(b)the probability of payment(for
example,by means of decrements for events such as death, disability,withdrawal or
retirement)between the specified date and the expected date of payment.
Amortization - Systematic reduction of the principal portion(only) of an asset or
liability.
Annual Required Contribution—Consists of the normal cost and a portion of the
total unfunded actuarial accrued liability(UAAL). The normal cost and UAAL are
derived from the actuarial present value of benefits,the actuarial cost method and the
plan assets.
Attribution Period -The period of an employee's service to which the expected
postretirement benefit obligation for that employee is assigned.
Discount Rate -The interest rate used in developing present values to reflect the time
value of money.
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APPENDIX B
Health Care Cost Trend Rate -An assumption about the annual rate(s)of change in
the cost of health care benefits currently provided by the postretirement benefit plan,
due to factors other than changes in the composition of the plan population by age
and dependency status, for each year from the measurement date until the end of the
period in which benefits are expected to be paid. The Health Care Cost Trend Rate
implicitly considers estimates of health care inflation, changes in health care
utilization or delivery patterns,technological advances, and changes in the health
status of plan participants. Differing types of service, such as hospital care and
dental care, may have different trends.
Normal Cost-The portion of the Postemployment Benefit Obligation attributed to
employee service during a period.
Substantive Plan-The terms of a postretirement benefit plan as understood by an
employer that provides postretirement benefits and the employees who render
services in exchange for those benefits. The substantive plan is the basis for the
accounting for that exchange transaction. In some situations an employer's cost-
sharing policy, as evidenced by past practice or by communication of intended
changes to a plan's cost-sharing provisions,or a past practice of regular increases in
certain monetary benefits may indicate that the substantive plan differs from the
extant written plan.
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